Abstract

The financial crisis has required the state, not just in the UK, to intervene in the financial markets to an extent that is unprecedented. This paper focuses on the management of the crisis and its aftermath in the UK, focusing on the constitutional dimension. The financial crisis did not cause a constitutional crisis, but it did reveal the practical operation of the constitution at times of crisis, demonstrating that we do indeed have a ‘flexible constitution’. In contrast to the US, where Congress was deeply involved in the terms of the bail-outs, in the UK executive decision-making most often took the form of ‘decide now, act immediately, explain quickly, and validate later’. However the crisis demonstrated that legal constraints on government action can come from a number of unexpected sources. The EU rules on state aid gave the EU Commission a far greater role in determining how UK taxpayers’ money was spent than the Westminster Parliament. The government is constrained in its ongoing management of its investments in the banks by corporate and financial regulation. The crisis has led to the creation of novel and challenging roles for the state, and the creation of a bespoke administrative apparatus to manage them. In many respects, formalisation, juridification, and greater transparency are replacing informality and opacity in some aspects of the management of financial stability and any future financial crisis. However the bodies managing the bail-out investments sit in an uneasy position in the structures of accountability and their experience to date demonstrates that trying to reconcile the pursuit of public interest objectives in the face of conflicting political and regulatory demands and within the twin confines of corporate law and constitutional structures is a difficult task. Finally, whatever the constitutional situation, the crisis has made it clear that the state ultimately underwrites the financial system. The markets may fear ‘big government’ but governments are now beginning to fear ‘big markets’. For as the current turmoil in the sovereign debt markets illustrates, financial markets can pose a greater risk to the state and its taxpayers than the state can ever pose to the markets.